QUESTION 82

1. a) The Long-Run Average Cost Curve for a firm is downward-sloping at low levels of q due to Economies of Scale. What does this mean? (2 marks)
3. Figure 1
6. b) Looking at Figure 1, explain why a price between P2 and P3 is sustainable in the Short-Run, but not the Long-Run. Give a real life example of this concept (3 marks)
10. Figure 2
13. c) Looking at Figure 2 above, in panel (a), what is the profit-maximizing Quantity to produce for the firm, Q1 or Q2 when the price is P2? Why? (2 marks)
15. d) Suppose P2 was determined in panel (b). In the long run, what will the price be, and what will Q for the individual firm and market QM become? Justify your answers. (3 marks)